China stocks slump 6 percent on fears of further yuan depreciation

HONG KONG Aug 18 (Reuters) - Chinese stocks plunged on
Tuesday as the yuan weakened against the dollar, reigniting
fears that Beijing may be intent on a deeper devaluation of the
currency despite the central bank's comments that it sees no
reason for a further slide.

Concerns that companies may pull more money out of China as
the economy slows and speculation that the government may begin
to scale back its massive support for the country's stock
markets also prompted investors to take profits after a run-up
in prices over the last few weeks, traders said.

The Shanghai Composite Index closed down 6.1 percent
at 3,749.12 points in its biggest daily decline since July 27,
snapping a three-day winning streak.

The CSI300 index of the largest listed companies
in Shanghai and Shenzhen fell 6.2 percent at 3,825.41.

Volatility in both indexes spiked in the afternoon in what
is becoming a mysteriously recurring pattern in China's stock
markets since Beijing stepped in to avert a full-blown price
crash in early summer.

The yuan fell against the dollar on Tuesday despite a
slightly stronger midpoint set by the central bank, and traders
expect the currency to remain under downward pressure as the
economy struggles.

The People's Bank of China devalued the currency last week
by nearly 2 percent, triggering an avalanche of selling by
investors who feared Beijing wanted to engineer a much sharper
decline to support weak exports. The PBOC was later forced to
step into the market and tell state banks to support the
currency.

Shares of importers and firms with high U.S.
dollar-denominated debt have been under pressure along with
Chinese airlines which face higher fuel bills following the
devaluation.

The central bank made its biggest injection of funds into
money markets in more than six months early on Tuesday, adding
to worries that liquidity was tightening as investors moved more
capital out of the country.
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